2015 Options Trade Log - Credit Spreads
Options credit spread strategies are a great way to generate cash and off-set some of the directional risk of a long stock portfolio. Instead of buying call or put options to speculate on whether a particular security will Because every credit spread trade has defined risk When stocks fall or trend sideways, which they can do for months at a time even in a bull market cred dpreaa!Don't be intimidated by the added layers of complexity or strange terminology involved There are 3 key ingredients to our success.
We will NEVER selectively report our results. We include our entire trading track record, winners and losers. With spread trading, losses are bigger than winners, but the win rate is higher.
Underlying stocks and ETF's DON'T have to go down or up dramatically for trades to win. Price can stay the same or even move against us a little, and we could still earn the maximum return (though we favor exiting these positions once we have made 50% of our max potential gain). The Chaikin model AMPLIFIES what is already a statistically significant trader edge. Here's a brief introduction to high probability spread trading from TheStreet.com. Below our trade log are our trading rules for this strategy.
- We find that the edge we get following directional trading signals in given by Chaikin Anaytics coupled with high probability option trading produces a spectacular win rate. When market conditions are less favorable to trend following Chaikin stock trades, you'll find us heavily involved in options trading.
We will NEVER selectively report our results. We include our entire trading track record, winners and losers. With spread trading, losses are bigger than winners, but the win rate is higher.
Underlying stocks and ETF's DON'T have to go down or up dramatically for trades to win. Price can stay the same or even move against us a little, and we could still earn the maximum return (though we favor exiting these positions once we have made 50% of our max potential gain). The Chaikin model AMPLIFIES what is already a statistically significant trader edge. Here's a brief introduction to high probability spread trading from TheStreet.com. Below our trade log are our trading rules for this strategy.
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Credit Spread Trading Rules
Watchlist Requirements
Money Management
- Only the most highly liquid stocks and ETF's. We use ThinkorSwim's Penny Increment public watch list.
- We favor underlyings with implied volatility above 20%, and implied volatility rank above 50%
- For bear call credit spreads, the Chaikin Analytics PG rating must be Bearish or Very Bearish
- For bull call credit spreads, the Chaikin Analytics PG ratings must be Bullish or Very Bullish
- Technicals for bear call credit spreads: Price below a downtrending Chaikin LT trend line, Money Flow negative, and relative strength negative.
- Technicals for bull put credit spreads: Price above an uptrnding Chaikin LT trend line, Money Flow positive, and relative strength positive.
- Use Chaikin buy or sell signals or your own technical criteria. Relative Strength Buy or Sell signals have a 4 to 8 week time frame and work best for this strategy
- Oscillator either overbought or oversold and rolling in the direction of the trade
- Select an option expiration month 3 - 7 weeks away. We prefer to sell at around the 45 day mark.
- Select a strike price that has around a 70% probability of expiring OTM (1 standard deviation)
- Credit received should represent a better return on risk than the theoretic probability of losing a penny or more at expiration. Example: your return on risk is 34%, while the theoretical probability of the trade going against you by a penny or more is 30%. We want to get paid better than the risk.
- More than 10 days to go prior to expiration: exit anytime you can bank 50% of the initial credit.
- 8-10 days prior to expiry: exit half the contracts
- 4-5 days prior to expiry: exit remaining contracts
- Alternative: if underlying is trading at a probability of expiring OTM that's at least 1 standard deviation (68% or more), consider heading into expiration without buying back the contracts.
Money Management
- No more than 2% of Net Liq at risk on any one trade.
- No more than 10% of total portfolio net directional risk . Trade a combination of put and call credit spreads to keep directional risk as neutral as possible.
- Position Size for max loss.